In 2024, the municipal bond market experienced an unprecedented surge, reaching record highs in issuance driven by a blend of infrastructure spending demands, election-related anxieties, and a wave of significant deals. An impressive total of $507.585 billion in municipal debt was issued this year, reflecting a staggering 31.8% increase compared to the $385.061 billion recorded in 2023, according to LSEG data. This remarkable figure not only eclipsed the previous all-time high of $484.601 billion set in 2020, but also signaled a robust rebound for a market that had witnessed two consecutive years of issuance below $400 billion.
Breaking down the figures, tax-exempt issuance climbed significantly by 36%, totaling $446.673 billion in 2024 compared to $328.536 billion in 2023. In contrast, the taxable issuance witnessed a decline of 10.5%, dropping to $35.632 billion from the previous year’s $39.817 billion. An interesting development within this landscape was the substantial rise in refundings, which surged by 63.6% to $84.479 billion from $51.646 billion in 2023. New-money volume also saw a healthy increase of 19%, reaching $355.607 billion, up from $298.779 billion.
The year began with optimistic forecasts for municipal bond issuance, which ranged widely from $330 billion to $450 billion. Analysts took into account factors such as the expiration of pandemic-era federal aid, pent-up demand, economic recession fears, and the impending 2024 elections. As the year progressed, revisions to these forecasts became commonplace, particularly in light of unexpected market developments, notably the resurgence of Build America Bonds and a steady flow of mega deals. By mid-year, anticipated issuance levels had stabilized between $385 billion and $460 billion—a clear indicator that the market was positioning itself for substantial growth.
Issuers in the bond market strategically placed their offerings amid volatility, with commentators noting that the higher yield environment provided valuable opportunities. Kim Olsan, a senior fixed-income portfolio manager at NewSquare Capital, aptly described 2024 as a “Goldilocks year” for both buyers and issuers. The yields, while elevated, were manageable for issuers, fostering an environment ripe for significant buying activity, including interest from exchange-traded funds.
A crucial driver of the issuance boom was the urgent need for infrastructure upgrades, particularly as federal aid began to dwindle. Chris Brigati, managing director and chief investment officer of SWBC, noted that municipalities had built up cash reserves during the height of the pandemic, allowing them to delay bond issuance. However, as these reserves diminished, municipalities turned back to the market to fund infrastructure projects that could no longer be postponed. This demand for infrastructure was particularly pronounced in regions experiencing rapid growth, such as the Southwest and Southeast, where urban sprawl necessitated new roads, hospitals, and schools.
The summer months of 2024 showcased sustained issuance levels with minimal declines, propelling overall numbers to new heights. October emerged as a particularly noteworthy month, with issuers tapping the bond market ahead of the presidential election scheduled for November. Historically, similar patterns have been observed during election years, as participants sought to mitigate uncertainties that could arise from election outcomes. Olsan emphasized that this strategizing around market conditions and forthcoming elections helped to drive the remarkable issuance figures.
In addition to the surge in overall issuance, the market witnessed a notable increase in mega deals, reflecting a growing acceptance among issuers to present billion-dollar-plus transactions. The appetite for such large offerings indicated a robust liquidity environment, making large deal sizes more palatable for investors—a marked shift from a decade ago when the acceptance of mega deals was uncertain.
Looking ahead to 2025, projections for municipal bond issuance are ambitious, with estimates suggesting a range between $480 billion and $745 billion. Most analysts predict that issuance will continue to trend upward, potentially eclipsing the historic numbers seen in 2024. However, several macroeconomic factors, including interest rates and inflation, will inevitably shape the landscape, with the added complexity of potential tax policy changes likely playing a pivotal role.
In December alone, the municipal bond market recorded issuance of $31.646 billion, showcasing a 14.6% year-over-year increase. Amidst these developments, California emerged as the leading state in terms of volume, with significant contributions from Texas, New York, and Florida, indicating strong regional demand across the country. As the 2024 electoral cycle concludes and the fiscal year transitions, market participants will watch closely to see how these factors evolve and their subsequent impact on the municipal bond landscape.